Cash in on tax credits
Jun 09 2009
If you’re an innovative small business, then you could be claiming thousands in Research and Development tax credits.
R&D tax credits are a tax relief based on your company’s investment in innovative technology. They can either reduce your tax bill or, for some small to medium-sized companies, provide a cash sum.
Chris Barling, CEO of ecommerce company Actinic claimed back over £300,000 through R&D tax credits on a £3 million investment in software writing, but says the process was not straightforward.
‘Our experience was that the procedure was a bit arbitrary. We originally had our claim rejected but we went back and had a face-to-face meeting with the relevant tax inspector. We also had won an award for our technology, so argued that an independent and detailed review of our activities had shown that we were highly innovative.’
Not so easy money
For Kevin Van Heerden, managing director of software company Net-Runna, the time and effort spent on claiming back R&D did not initially seem worth the effort.
Having received £89,000 at the end of last year Van Heerden believes that the credits can act as a crucial lifeline. ‘Without doubt it’s definitely something companies should look into, it can provide some welcome breathing space,’ he adds.
According to HMRC only 4,500 small to medium-sized businesses successfully claim R&D credits. David Marshall, director of Alma Consulting, believes this amount is vastly unrepresentative of the companies eligible for relief. ‘The reasons there is such a low amount of companies claiming R&D is because the guidelines are so complex – running to over 1,000 pages long.
‘A lot of businesses are missing out. I would say that more than half of the companies we see that are unsure of their eligibility actually are.’
Language barrier
Marshall says that part of the problem is in the name ‘I think the term Research and Development is a bit of a misnomer. A lot of companies will not conduct Research and Development, but just development – which is enough to qualify. Most commonly the companies we find eligible are involved in things like product development.’
The net benefit to your company will depend on what you pay in corporation tax. To qualify you will also need to be spending a minimum of £10,000 on R&D-related costs.
Marshall estimates that the majority of profit-making SMEs on average get back 16 per cent on R&D investment. So if they spend £100,000 on developing a project they’ll recoup £16,000.
Whereas loss-making SMEs on average get back 24 per cent – working out at £24,000 per £100,000 spend.
With amounts like these at stake, R&D could be a relief you can’t afford to ignore in such cash-strapped times.
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